Virus Class Actions Against Chinese Gov't Face Uphill Battle

By Robert Boone and Simren Gill

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Law360 (April 9, 2020, 4:25 PM EDT )

Robert Boone

Simren Gill

An initial wave of three class actions stemming from COVID-19 were filed against the Chinese government recently. Each action claims the Chinese government is liable for injuries and damages in the U.S. caused by the virus. Other suits no doubt will follow.

The first suit, Logan Alters et al. v. People's Republic of China et al.,[1] filed in the U.S. District Court for the Southern District of Florida, in Miami, asserts claims for negligence, negligent and intentional infliction of emotional distress, strict liability for ultra-hazardous activity, and public nuisance against the People's Republic of China and its National Health Commission, Ministry of Emergency Management, and Ministry of Civil Affairs, as well as the People's Governments of Hubei Province and Wuhan City, where the virus allegedly originated.

The plaintiffs in this case seek to certify national and Florida noncommercial tort and commercial classes, consisting of all persons and legal entities who suffered injury, damage and loss related to the COVID-19 outbreak.

The second suit, Bella Vista LLC et al. v. People's Republic of China et al.,[2] filed in the U.S. District Court for the District of Nevada, in Las Vegas, is a pared-down version of the Logan action, and asserts claims for negligence, strict liability for ultra-hazardous activity and public nuisance against the same defendants. The plaintiffs seek to certify national and Nevada classes consisting of all small businesses that suffered injury, damage and loss related to the COVID-19 outbreak.

The third suit, Borque CPAs and Advisors Inc. et al. v. People's Republic of China et al.,[3] filed in the U.S. District Court for the Central District of California, in Los Angeles, repeats the claims set forth in the Logan action and adds two additional defendants: the People's Liberation Army and the Wuhan Institute of Virology, a biological laboratory claimed to be located 20 miles from the city center and a conspirator in the outbreak.

The plaintiffs in this third action seek to certify a nationwide and California class consisting of all small businesses that suffered financial loss due to COVID-19. All three suits allege the Chinese government coordinated a cover-up of the coronavirus pandemic in China generally, and in Hubei Province and the city of Wuhan in particular, causing the virus to spread around the world, including to the U.S.

The complaints cite to a series of instances where Chinese government officials failed to timely report the virus, underreported the severity of the virus, underreported the number of deaths from the virus, failed to contain the outbreak within the country, destroyed data about the virus, misled the World Health Organization about the virus, censored social media references to the disease, prevented doctors and the press from reporting about the virus, and made misleading and false public statements about the status and severity of the outbreak in China.

The complaints further aver that the Chinese government admitted that several of its actions were wrong or misleading. The plaintiffs also allege that the PRC runs two bioweapons laboratories in Wuhan, one of which works with deadly viruses, close to the wild animal wet market where the virus originated, and workers at the labs sold lab animals to the market after experimenting with them, instead of cremating the infected animals, as required by law.

These cases face a series of hurdles.

First, defendants may be immune from suit under the Foreign Sovereign Immunities Act.[4] The FSIA provides immunity to foreign countries, including their agencies and instrumentalities, from suit in the U.S., barring a few exceptions. The complaints allege that two exceptions apply: (1) that defendants' misconduct relates to a commercial activity that caused a direct effect in the U.S., and (2) that defendants' officials or employees committed nondiscretionary tortious acts while acting within the scope of his or her office or employment.

Neither exception is easily established. But should any exception apply, personal and subject matter jurisdiction will be automatically conferred on the courts.

The FSIA defines "commercial activity" as "either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose."

The U.S. Supreme Court further clarified, in Republic of Argentina v. Weltover Inc.,[5] that to be considered commercial, an activity must be of the type "which a private party engages in" as it relates to trade or commerce. But the conduct alleged in the complaints centers on governmental activity, not commercial activity.

For instance, censoring social media, destroying medical data, detaining doctors attempting to report the virus and publishing false statements about the virus are not commercial activities. None of these activities involves performing private trades or commercial transactions to which the any of the defendants is a party.

The plaintiffs must also prove that the commercial activity had a "direct effect" in the U.S. In Weltover, the Supreme Court ruled that an effect is considered direct if it "follows as an immediate consequence of the defendant's legally significant act." The plaintiffs will have to prove that the virus would not have spread to the U.S., and to them, had the defendants not engaged in the various acts and omissions.

This will require expert testimony and modeling of the spread of the disease, taking into consideration assumptions that events such as the alleged misconduct did not occur. With a highly contagious virus that may not be detectable up to two weeks after transmission, the risk that the disease would have spread to the U.S. in any event remains likely. And, of course, there could be innumerable intervening causes for why and how a particular named plaintiff or unnamed class member became adversely affected by COVID-19.

Even more, the Chinese government has a record of defeating suits on the grounds that its actions do not have a direct effect on the U.S. sufficient to trigger liability under the commercial activity exception to the FSIA. For example, in 2005, a concerted group of U.S. citizens sued the PRC for its failure to pay principal and interest on bonds issued by the Chinese government. Those plaintiffs insisted the PRC should be held accountable for its economic commitments.

The PRC moved to dismiss the suit on the grounds that its decisions regarding the bonds did not have a direct effect on the U.S. The court agreed — citing to Siderman de Blake v. Republic of Argentina,[6] which held that "mere financial loss suffered by a person, whether individual or corporate, in the United States is not, in itself, sufficient to constitute a 'direct effect.'"

That leaves the second exception, for nondiscretionary tortious acts or omissions. Prototypical cases of nondiscretionary tortious act or omissions include injuries resulting from an automobile accident involving an embassy vehicle, or a slip and fall in a foreign consulate. The Supreme Court, in Argentine Republic v. Amerada Hess Shipping Corp.,[7] found the fact that a plaintiff incurred an injury in the U.S., or that the "alleged tort may have had effects in the United States," is insufficient to waive sovereign immunity.

Federal courts across the country consistently hold that the entire tort must have occurred in the U.S. for the exception to apply. Each of the new complaints alleges tortious acts or omissions that occurred in China — not the U.S.

The alleged conduct in the complaints also may be independently considered discretionary and nonactionable. Such conduct includes determining what information to disclose, censor or destroy; to whom to disseminate the information and when and how; and how to react to the virus, including how to control it and treat patients. Even the alleged reckless decision by Wuhan City officials to hold a potluck banquet for 40,000 people just to break a world attendance record, despite knowing about the virus, appears to be discretionary.

Second, the Chinese government may not respond. Unlike domestic litigation, where a failure to respond after being served with a complaint will typically result in a default judgment against the defendant without further ado, the FSIA mandates that:

[N]o judgment by default shall be entered by a court of the United States or of a State against a foreign state, a political subdivision thereof, or an agency or instrumentality of a foreign state, unless the claimant establishes his claim or right to relief by evidence satisfactory to the court.

The Chinese government historically waits for courts to make the first move before it takes action. For example, in Jackson v. People's Republic of China,[8] plaintiffs in a U.S. class action obtained a default judgment of over $41 million against the PRC. A year after receiving service of the judgment, the Chinese government appeared in the case and filed motions to vacate the judgment and dismiss under the FSIA. Both motions were granted. The same song and dance played out in Walters v. People's Republic of China.[9].

Under the FSIA, defendants have 60 days from the service date of the complaint to file their responsive pleading. Parts of the world may still be in quarantine when the Chinese government's decision to act or not becomes known.

Third, even assuming the plaintiffs are able to survive any substantive challenges to the asserted claims, such as whether the Chinese government even owed a duty of care to plaintiffs, class certification may be difficult to obtain. The issue of causation may be too individual as to each plaintiff and predominate over any common issues, thus making class treatment inappropriate.

The putative classes include millions of plaintiffs, which may render the cases unmanageable. Nor is there a damages model that can apply across the entire class, or any of the putative classes. And the nature and extent of the injuries suffered will likely vary from class members to class member, making the named plaintiffs atypical and incapable of adequately representing the class.

Fourth, any judgment obtained may be uncollectable. Class counsel in the Bella Vista action was interviewed by Law360 on March 24. The article states, "In terms of recovery of money damages, the attorney said China has 'trillions of assets' parked in the U.S., 'so a judgment is collectable.'"[10] But the law suggests otherwise. Under the FSIA, "property in the United States of a foreign state shall be immune from attachment arrest and execution." This rule has a few limited exceptions, but none appear to apply here.

In the current environment, these lawsuits do, at first blush, have some appeal as a means to redress significant losses being suffered by those adversely affected by COVID-19. Looking deeper, class plaintiffs face tough odds with little likelihood of recovery.

Robert E. Boone III is a partner and Simren K. Gill is an associate at Bryan Cave Leighton Paisner LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Logan Alters et al. v. People's Republic of China et al., Case No. 1:20-cv-21108-UU.

[2] Bella Vista LLC et al. v. People's Republic of China et al., Case No. 2:20-cv-00574.

[3] Borque CPAs and Advisors Inc. et al. v. People's Republic of China et al., Case No. 8:20-cv-00597.

[4] 28 U.S.C. § 1602 et seq.

[5] Republic of Argentina v. Weltover Inc.